Tesla, Tesla, Tesla. That’s all anyone in the graphite industry wants to talk about these days, but you’re not allowed to do so publicly until the powers that be at Elon Musk HQ dub you worthy. So the talk is often in hushed tones, or contains keywords that you’re supposed to relate to a certain auto industry startup..
If I had a dollar for every executive that had told me in the last year the Tesla Gigafactory is going to be needing to use graphite from their claim, I’d have.. well, actually I do have a dollar for every company that’s told me that. I may put it down as a deposit on a condo.
Graphite One (TSXV:GPH, Forum) have one eye on Tesla at all times, and last week they watched as the electric car maker dubbed Pure Energy (TSXV:PE, Forum) the recipient of a supply deal for lithium, a move that the market apparently guessed and which drove the share price up by 200% over a month or so, even if it fell off a cliff after the news came out and the entire world took its profits…
That’s the first of a presumed six mines that will be needed to fill Tesla’s gaping maw. Graphite, lithium and cobalt will be needed to make the company’s lithium ion batteries, along with a little nickel, bauxite and copper.
On the graphite side, Tesla will reportedly be needing 126,000 tonnes of flake graphite and 50,000 tonnes of spherical graphite, otherwise known as battery grade. That’s six times the current global supply for the battery business.
Admittedly, China makes both, and in large numbers. But you could also refer to China’s supply by its industry preferred name – bullshit graphite – so it’s safe to say Tesla will not be playing in the low grade churn market, especially with a 36% Chinese export tax and depleting supply, which means it’s looking stateside and at Canada, where it can be certain of a steady, high grade supply.
So what will trip Tesla’s trigger?
· US-based asset, with home grown investments
· A decades-long supply of materials
· High grade products
Graphite One thinks it may come down to something they’re calling STAX, which is a trademark they’re registering, and stands for Spheroidal, Thin, Aggregate, eXtended. Insert the obvious jokes here.
I spoke to their technical consultants today to get a sense of what STAX is and, actually, it’s potentially a big deal, especially as things go with the potential for a supplier deal.
Battery makers need their graphite in a certain way. Regular graphite, to be useful, needs to be processed, turned into spherical graphite and, in doing so, not only does a company spend a bunch of cash, burn a load of energy, and have to cook their ore to make it expand outwards, but you could also end up with only 30% of your graphite ending up as actually useful for the stated purpose, with the rest headed for the tennis racquet/lead pencil game.
Tesla wants its graphite in production-ready shape. Just because you dig a load out of the ground, doesn’t mean they’ll put it in their shiny cars and battery walls and hyperdrive monorails and time/space wormhole generators (coming soon, I’m sure).
Graphite One’s graphite, according to their geos and consultants (and we’re talking guys with over 25 years of graphite experience here, not a socially maladjusted old-timer wearing a Crocodile Dundee hat and a drinking problem equally poorly), is absolutely unique in that it comes in shape that is decidedly battery friendly.
Analysis of the rock shows it’s already largely spheroidal, it’s thin, it features smaller particles mashed together naturally (the aggregate factor), and it has naturally expanded. The techie guys don’t know why this is. It could be down to the age of the rock, or a geological event, or a thermal event, or aliens may have come down and zapped a given part of Alaska with a raygun.
How it happened, for now, isn’t relevant. What is immensely relevant is, something did. And now Graphite One is sitting on this batch of rock that has, somehow, naturally, without any added expense, turned itself into really nice battery cathode ingredients.
Back on the mainland, Tesla is feverishly creating a market that, frankly, should have already existed for a long time. The US imports all of its current graphite supply from overseas suppliers, even though it’s considered a ‘strategic mineral’. There is no local graphite scene – yet – because while there are plenty of companies with graphite in the ground, there is precious little production going on, and not a whole lot of end user feeding.
Tesla’s grand plans have charged the industry (pun so non-intended) however, and every player in the business is now making grand plans to be ‘the one’, or at least one of six.
Graphite One, just quietly, has something that may be more important than grade and ease of access and the wonder powers that may one day allow us to make bulletproof graphene backscratchers. If Graphite One can get the rock out of the ground, they can do a minimum of processing and potentially come away with twice the usual battery grade yield because they don’t need to perform alchemy to get it ready for prime time, at lower cost, in a more sustainable fashion, in a state that LURVES mining, with a nearby workforce that has decades of mining experience, and all of that is just a short boat ride away from where Tesla needs it to be.
And, going by the current resource numbers, they’ve got enough large flake graphite (with better than 80 mesh, if you’re a purist) to build a lead pencil land bridge across the Pacific Ocean 23 times. Actually, I can’t back that statement up. But they have a lot of graphite.
Big graphite. Flake graphite. Inexpensive to dig up ‘open pit’ graphite that screams ‘batteries’.
Graphite that can be used in large off-grid graphite anode energy storage systems, which is another market that doesn’t yet exist but will be coming quickly with the rise of solar, wind, tidal and other irregular-hours energy generators. Indeed, Musk has announced his next project will be ‘energy walls’, which will be home-based batteries that can draw energy from solar power cells to be used when there’s no solar power to speak of. This market is already cranking, with 34% growth annually, according to analysts.
Then there are aluminum smelting anodes, which presently use petroleum coke and anthracite, which suck for such a use case. And, oh yes, the global demand for that product today is 13 million tonnes per annum. Yes, million.
Maybe you like fuel cells. Each one in production now requires 80 kilograms of graphite, on average. That’s a lot of graphite and, again, currently it comes from across the world.
Steel. Refractories. Lubricants. Carbon brushes. Batteries. Auto parts. They ALL get their graphite from international suppliers, which means they pay a lot in shipping, a lot in export duties and taxes, and they get mondo crappy grade material which won’t cut the mustard as technology requires more and more storage to make our lives go smoothly.
And let’s not even get into graphene, which is 100x stronger than steel, ridiculously un-heavy, conducts heat ten times better than traditional copper and is nearly transparent. Coat a beer bottle in graphene and you could fire it out of a cannon and not risk breaking the thing, though I wouldn’t want to be the guy tasked with catching it on the other side.
Let’s talk logistics. Some potential graphite suppliers to Tesla brag that you could literally send it to them by cab, because they’re so close. Graphite One is not one of those, but the beauty of Alaska is can fill a boat with a mineral and send it almost anywhere, really inexpensively – especially when you’re about 70kms from Nome.
No Tesla deal? Shrug. Ship it to Japan. Or Russia. Or China, which is running increasingly low. Or Australia. Or anywhere on the west coast of the US, or Canada. Transport hub, baby.
Currently (if you’re a traditional mining person intrigued by resource estimates), Graphite Creek boasts an inferred resource, as of April 2015, of 154.6 million tonnes. Tesla requires 175k of that every year as a base.
That makes for a 4.8 km resource. Mine life? Next level.
Let’s talk purity: Rough concentrates from a surface mini-bulk sample in 2012 pulled purity concentrates after chemical leaching of 99.2 to 99.9% graphite. Those sorts of levels are about as good as you’re going to get, unless someone hoovers up a few centuries of goose poop ahead of the next sampling.
Production is planned for 2018, which is a few years earlier than Tesla will likely have the Gigafactory at full swing, which is PERFECT for walking into Casa Musk, throwing a bucket of graphite down on his desk with a contract on top while doing the ‘sign here’ dance.
And why wouldn’t they sign? Tesla has said it wants a US supply. It obviously makes sense to deal with fewer vendors rather than more, and if this project gets into full swing production, it can generate all the supply Tesla needs.
But I’m going to play devil’s advocate and say Tesla is dumb and will find someone else to do it. I’m going to be conservative and say, that big fat global supply melting deal will go elsewhere.
What then?
The world battery market, presently, only makes up about 20% of the global need for graphite, so Tesla would be nice and all but it’s really not the be all/end all of the business. For every tonne of graphite Tesla will consume, there’ll be another for auto part manufacturers and steel plants and research products and brake pads and hey, neutron moderators in nuclear reactors! Bicycle frames! Golf club shafts! Tennis racquets! Reinforced concrete! It’s used in submarine snorkels in helping to avoid radar detection and in the body of the new Boeing 787 Dreamliner, just because. And, yes, when the apocalypse comes there’s pencils.
Now that I’ve finished schooling you on graphite 101, and now that you’re aware of the size and quality of the Graphite One resource, and now that we’re all in agreement it would make a boatload of sense for the North American graphite market to not come from Chinese companies that have to ship it around the world and charge up the wazoo for it..
..now is the time for you to quietly move to your trading desk, search for V.GPH, and ‘add it to watchlist’.
I’m not telling you to buy it. I haven’t, because I’m chancing that the big important news release that Elon is buying a squintillion tonnes of Alaskan graphite might not come for a few weeks, or even months.
But I’m watching, while a lot of others are buying into the recently announced financing, which initially looked to raise $500k at 8c, quickly doubled in size to a million bucks, and is now up to $1.5 million. That’s unheard of in the commodities game right now. People are noticing G1.
Look, this is a terrible market right now. I literally just got off the phone with an exec from a gold miner who took an option on a mining camp for $1,000 in literal beer money because the owner didn’t want to pay $4,000 in claim extension fees.
And, yet, Graphite One tripled their financing. People in the know get it, and are sinking their cash into it.
Watch this space.
--Chris Parry
https://www.twitter.com/chrisparry